Over a century ago, New York City's iconic Lord & Taylor building opened its doors. It has always been a monument to traditional, old-school retail. The building on Fifth Avenue in Manhattan was even declared a city landmark a decade ago. But on Tuesday, Hudson's Bay — the company that owns the department store chain — announced that it would be selling the building to seven-year-old start up WeWork. This sale is indicative of changes in an evolving economy.
WeWork's office-sharing model is helping to re-invent the concept of work space. Small and mid-size businesses can rent office space at a WeWork location. The company also aims to humanize work. They believe CEOs can learn from each other and that offices should have all the comforts of home. Hudson Bay's plan to sell the space to WeWork for $850 million reveals the economic value of co-working space over traditional brick-and-mortar retail space.
There are plenty of stories blaming millennials for the downfall of department stores and many other things. But millennials aren't making economic choices based on the intention of sinking long-established businesses. The failures of traditional department stores only demonstrates their lack of flexibility. These aging industries have not adjusted to the new culture millennials are bringing to the economy.
In the short term, these changes can seem negative and harmful. The effects can be widespread, resulting in thousands of lost jobs. But in the long term, these changes are natural and expected. There were major shifts during the Industrial Revolution or during the Dotcom boom of the '90s. And now, we are in the midst of a digital revolution of sorts. As a result, the culture is changing once again.
Millennials have different values from the generations that came before them. They have grown up with computers and mobile technology so they are used to convenience and ease of use. Traditional department stores are built to encourage as much purchasing as possible. Unlike generations before them, millennials often value experiences over items. When they need something, it makes more sense to buy it quickly online rather than sit through the sales pitch of a clerk. However, millennials are spending more than previous generations on activities like dining out and movies.
Another way to win over millennials is with lowering friction at check out. Starbucks is winning over customers with their customer loyalty app that makes paying as easy as waving a phone. The more stores support Apple and Samsung pay, the more millennials will want to shop there.
Soon, millennials will have more buying power than any other generation group. If businesses want to survive, they need to adjust to their desires. Millennials want customer experiences tailored to their preferences. Personalized experiences make them feel valued and wanted. They frown on general catch-all phrases and spiel. Showing attention in-store or through social media will create loyalty in millennials. Businesses should leverage their customer data to achieve the perfect personalized experience for these up and coming customers.
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.